Region's shipping businesses embracing private equity

Thousands expected in Stamford: Will be topic at annual CMA event this week

Richard Lee

Published 9:43 pm, Monday, March 10, 2014

It's pretty easy to think of seaports like Long Beach, Calif., Houston, Newark, N.J., and others on the Atlantic and Pacific coasts as giants among the network of port cities around the world.

The vessels arriving and departing daily from these ports carry millions of tons of cargo -- playing a crucial role in transporting products generated by an international economy.

So it may sound surprising to learn that the tranquil waterfronts of coastal communities like Greenwich, Stamford, Fairfield and even Bridgeport play a significant role in this critical industry.

Maritime companies abound throughout southwestern Connecticut -- either directly or in a support role -- and contribute millions of dollars in taxes and wages to the region's economy.

Fairfield County is home to myriad maritime shipping companies and support businesses, including suppliers, law firms, financiers and insurers, according to Jim Lawrence, chairman of Stamford-based Marine Money International, publisher of Marine Money magazine, a global marine financial publication.

"It's pretty close to 5,000 people" in the industry, said Lawrence, who has been involved with the maritime business more than 25 years. "The region is the source of billions of dollars of global economic activity. Connecticut is one of the world's acknowledged maritime centers along with Singapore, London, Hong Kong, Oslo and Athens as home to ship owners, charterers, commercial brokers and professional advisers like lawyers, insurers and financiers. Houston may be the operational center in the U.S., but Connecticut and nearby New York are clearly the mind and management center of shipping in the U.S."

Shipping 2014

As a prominent maritime shipping center, the region attracts graduates from state and federal maritime academies, Lawrence said, noting that Stamford annually hosts an international event that attracts shipping company representatives from around the globe. Hosted by the Connecticut Maritime Association, Shipping 2014 is expected to draw more than 2,500 players in the industry from March 17 through 19 at the Stamford Hilton.

Most of those Fairfield County companies that own or manage ships that visit ports around the world will attend the event, and many have teamed with private equity firms and taken advantage of low ship prices to expand their fleets. Those private equity firms are wagering that ship prices will bounce back from historic lows after some fell more than 70 percent.

It's drawing interest from private equity firms like Riverstone, which was attracted to the potential of Westport-based Ridgebury Tankers and pumped $200 million into the business last April for ship purchases.

Through Riverstone's assistance, Ridgebury has acquired 15 product carriers, and more are coming, according to Robert Burke, founder and CEO of Ridgebury.

"We have three years to invest our $200 million," Burke said. "I saw 40 different private equity firms and kept at it. There's not a lot of sources for equity out there. The banks don't give you equity. I wanted to buy a bunch of ships."

"The (global) fleet will be flat or declining the next few years. We expect demand to continue to increase about 2 percent a year, so rates should go up," said Burke, former CEO of Industrial Shipping and a veteran of more than 30 years in shipping-related activities.

Burke's background also includes two years as a navigation officer, founder of Great Circle Capital, CEO of Chembulk Tankers, and managing director of GE Capital, where he was in charge of the marine transportation group.

`Very smart money'

"Our strategy is to invest in modern tonnage either currently on the water or on resales of vessels that will enter service shortly," Burke said last April when the investment by Riverstone was announced. "We believe that the next 12 to 24 months will present an attractive entry point for investment in the sector."

The investment in Ridgebury, which has 10 employees at its Westport headquarters, is consistent with Riverstone's model of partnering with proven management in focused segments of the energy industry, according to John Lancaster, a partner in Riverstone, which has committed about $21.6 billion to 97 investments.

"Crude oil and product tankers are an essential component of the rapidly evolving and critical global energy logistics system, and we believe the sector's immediate and long-term fundamentals provide the potential for entry, growth and attractive returns," he said.

Noting that a tanker in the very large crude carrier category can cost $100 million, Lawrence said it constitutes a sensible investment for a private equity firm.

"You get a manufactured asset at a low entry cost. The downside risk is very limited," Lawrence said, estimating that daily charter rates are $100,000. "That's a home run. Private equity is very smart money. They find the best operators and recapitalize struggling companies."

American Phoenix

Lawrence recited a list of shipping companies in the region that have received an infusion of private equity funding, including Principal Maritime Management in Southport, Diamond S Shipping Group in Greenwich and MidOcean Marine in Norwalk.

MidOcean partnered with Alterna Capital Partners, a Wilton private equity firm, to form a joint venture in 2011. It led to the construction of a partially completed oil tanker that was christened American Phoenix and now operates as a chartered vessel plying the Gulf of Mexico.

The financing agreement Alterna has with MidOcean is one of five it has with maritime shipping companies.

"We saw opportunity to acquire vessels at prices that are the basis of great earnings and capital going forward. The price of ships went sky-high, but with the crash prices dropped. That was a signal for us to start looking," said James Furnivall, managing partner at Alterna, which in 2009 raised its first fund of $428 million. It is finishing up its second fund with a target of $600 million.

Prospects look good for a solid return on investments made by private equity firms, said Furnivall, who has seen improvement in vessel value and charter rates across several shipping sectors.

Navig8 Group in Westport, which manages pools of ships and operates 248 tankers and bulkers, recently partnered with Oak Tree Capital to buy six stainless steel chemical tankers and form Navig8 Chemical Tankers.

Diamond S Shipping Group, which has backing from billionaire investor Wilbur Ross, announced in late February that it is selling 14 million shares priced at $14 and $16 to fund the purchase of 10 refined-fuels tankers vessels being built in South Korea.

Vessel financing promises to be a hot discussion topic at the CMA event. An opening day panel session will include discussion of private equity funding.